The economic laboratories at work in the 50 states have produced disparate results according to new government data, and experts say the success of states like North Dakota and Utah and poor performance of Michigan and Nevada have national implications.
Data from the Commerce Department’s Bureau of Economic Analysis show that second quarter personal income in North Dakota, Texas and Iowa enjoyed the largest gains year over year; on a quarterly basis Nebraska came out on top.
In an interview with AdvisorOne, American Enterprise Institute scholar Mark Perry, author of the widely followed economics blog Carpe Diem, noted that the quarterly emphasis of the BEA report, which put Nebraska in the top spot, obscured the big story that personal income in North Dakota rose a whopping 13.31% on an annual basis–about twice the level of second- and third-place states Texas (7.27%) and Iowa (7.17%) and more than twice the national average of 5.47%.
“That huge increase in oil production has really stimulated their economy,” Perry (left) said about North Dakota. “They have a huge tax surplus; they just cut income tax rates; they’ve had the lowest unemployment rate in the country.” The state has also led the way in job growth, personal income growth and state GDP expansion, he added.
“It all really comes back to the energy story–how they’ve done so well by developing energy in the western part of the state. They just set a new record in July: They’ve been increasing oil production at such a fast rate that they’ll surpass Alaska and California and be No. 2 behind Texas,” Perry said. “It’s clearly the most successful state in the country.”
In a separate interview with AdvisorOne, Kevin Klowden, managing economist of the Milken Institute, an economic think tank in Santa Monica, Calif., agreed with Perry that energy is a “huge factor” in the economic performance of the top-ranked states, but added that crop revenues was the other key factor. “Food is definitely a big deal” for Iowa, Kansas and Nebraska, he said.
Klowden singled out Utah as a particularly instructive state success story. “A number of industries in Utah are rebounding very well. Utah has been seeing some very consistent growth in terms of personal income”–all despite having suffered a housing bubble and ongoing high foreclosure rate, he said. “It seems to have weathered the housing bubble a lot better than its neighbors.” The reason for the state’s resilience? “Utah pushed attracting high-tech knowledge-based industries,” Klowden says.
As for the worst performing states, Klowden says the volatility of the BEA’s quarterly data is what accounts for Washington, Oregon and Georgia falling to the bottom. These are states where bonuses paid last year were reported in the first quarter, making Thursday’s second quarter data exhibit fallout disproportionate to actual economic performance. Adjusting for this seasonality, Klowden would identify Michigan, Indiana and Nevada as the worst performing states.
He says Nevada has the dubious distinction of having the highest unemployment rate, at 13.4%; its tourism industry has not yet recovered; and it is still reeling from the bursting of its housing bubble. Indiana is still reliant on ailing industries and Michigan is “still hurting horribly.”
The American Enterprise Institute’s Perry, a professor of economics and finance at the University of Michigan as well, also singled out his home state as an instructive example of failure. “Resources in Michigan are comparable to what we have in North Dakota, but they’re off limits because of government restrictions on exploration.”